Correlation Between American States and China Water

Can any of the company-specific risk be diversified away by investing in both American States and China Water at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining American States and China Water into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between American States Water and China Water Affairs, you can compare the effects of market volatilities on American States and China Water and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in American States with a short position of China Water. Check out your portfolio center. Please also check ongoing floating volatility patterns of American States and China Water.

Diversification Opportunities for American States and China Water

-0.08

Correlation Coefficient

American States  China Water

Good diversification

The 3 months correlation between American and China is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding American States Water and China Water Affairs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Water Affairs and American States is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on American States Water are associated (or correlated) with China Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Water Affairs has no effect on the direction of American States i.e., American States and China Water go up and down completely randomly.

Pair Corralation between American States and China Water

Assuming the 90 days horizon American States is expected to generate 31.98 times less return on investment than China Water. But when comparing it to its historical volatility, American States Water is 4.17 times less risky than China Water. It trades about 0.02 of its potential returns per unit of risk. China Water Affairs is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  38.00  in China Water Affairs on September 23, 2024 and sell it today you would earn a total of  21.00  from holding China Water Affairs or generate 55.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

American States Water  vs.  China Water Affairs

American States Water

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American States Water are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, American States is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

China Water Affairs

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Water Affairs are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental drivers, China Water reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American States and China Water

The main advantage of trading using opposite American States and China Water positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American States position performs unexpectedly, China Water can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in China Water will offset losses from the drop in China Water's long position.

The idea behind American States Water and China Water Affairs pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.